The Italian government should use its funding for meeting the DAE

In document Achieving the Objectives of the Digital Agenda for Europe (DAE) in Italy: (Page 67-87)

The Italian government, together with other national and European resources, should provide enough funding to ensure that all supply side aspects of DAE Objectives 1, 2, and 3 can be substantially met. In doing so, the Italian government should seek to obtain enough leverage over network operators that accept funding to enable the Italian government to monitor deployment shortfalls and, to some extent, to remedy them.

8. Findings and recommendations

There are grounds for cautious optimism regarding the deployment and adoption of ultrafast broadband in Italy. Network operators in Italy have concrete plans to cover roughly 50% of the

Italian population with fast broadband based on FTTCab/VDSL2 technology between now and roughly 2017. In contrast to the recent past, these plans are credible, and deployment is demonstrably moving forward. Given Italy’s favourable characteristics (i.e. a network structure with short sub-loop lengths), these lines will be able to deliver well in excess of the 30 Mbps required by the second of the DAE broadband objectives.

There are risks that the plans will not be carried through to completion. There are serious operational and regulatory challenges. Nonetheless, we consider the plans to be credible overall.

In and of themselves, these plans will not achieve the DAE Objectives.

 There are no solid commitments to cover more than 50% of the population with fast or ultrafast broadband.

 The current plans of the network operators do not address 100 Mbps service; with expected improvements in technology, however, it is likely achievable.

 Even if most lines were able to provide 100 Mbps service (and bearing in mind that 50% penetration requires considerably more than 50% coverage), there are problems with consumer demand that would need to be addressed in order for the adoption target (DAE Objective 3) to be achieved.

In the absence of committed, energetic and sustained attention by the Italian government, DAE goals will not be fully achieved. We therefore urge the Italian government to take proportionate, appropriate steps to deal with each of the gaps within the authority available to

it, with due respect for the respective competencies and independence of the European Union and of Italian regulatory and competition authorities. The following would be appropriate:

Comprehensive analysis, planning and monitoring of the investment required and of investments made to achieve DAE broadband objectives, taking a balanced approach between fixed, mobile, fixed wireless, and even satellite resources, and also considering not only supply side factors but also the demand side.

Provision of sufficient additional funding to close coverage gaps, drawing on European Structural Funds and other sources, based on the results of the analysis, planning and monitoring function. Attention at regional level is warranted. Compatibility with European State Aid guidelines is required.

Measures to drive down deployment costs, including initiatives to enhance the radio spectrum and to enhance the efficiency of spectrum use; and promotion of infrastructure sharing, to the extent permissible under European State Aid and competition guidelines.

Measures to correct lagging demand for broadband services in Italy, including digital literacy programmes. Low consumption of audiovisual services is a concern that warrants detailed analysis.

The remainder of this chapter provides a recapitulation of our key findings (as they appear at the beginning of each chapter) and our recommendations. The key findings appear in Section 8.1. Section 8.2 provides an overview of our recommendations, together with pointers to the recommendations that appear throughout this report.

8.1. Findings

Following the sequence of presentation of the report as a whole, our key findings are as follows.

8.1.1. Where does Italy stand today in achieving DAE goals?

 Fixed network basic broadband coverage in Italy is quite good, both in absolute terms and also in comparison with other Member States of the EU.

 By contrast, coverage of fast broadband (30 Mbps or more) in Italy is the worst among the Member States of the EU. The total absence of cable is a major contributor to this deficit.

 Broadband penetration is also a concern. Even though coverage is high, adoption is low. Indeed, among its peer group of Western European Member States, Italy ranks last.

 The nominal speed of the access link is only one measure of the speed of the network. The speed of the core network and aggregation network also impact total throughput. In terms of total throughput, Italy ranks badly in comparison with European and global competitors.

8.1.2. Alternatives to the fixed telecommunications network

Cable television service is non-existent in Italy.

Mobile services based on forms of LTE are unlikely to be adequate, in our judgment, to serve as a full substitute in the period 2014-2020 for 100 Mbps fixed broadband service, nor to serve as a full substitute for fixed broadband services at 30 Mbps in areas of moderate to high population density. Mobile service can and will serve as a substitute for 30 Mbps broadband in areas of low density.

 Fixed wireless service is small today in terms of number of subscribers, but covers a substantial fraction of the Italian territory. Policymakers should not ignore it.

 Satellite should be considered as a substitute service only for a very small percentage of users who cannot practically be reached in any other way. The latency characteristics that are inherent in geosynchronous satellites are unavoidable, and (together with limitations in bandwidth capacity) render the service unattractive where alternatives are available.

8.1.3. Promising developments and opportunities

 Key network operators, notably including Telecom Italia and Fastweb, have credible and realistic deployment plans, and are deploying to these plans. Vodafone has made credible commitments to invest. Italy is fortunate to have fixed network competitors that are willing and able to invest in fast broadband infrastructure.

 Italy represents an ideal case for a relatively inexpensive form of fast broadband, namely FTTCab/VDSL2 due to the relatively short length of copper sub-loops.

 Technological advances to VDSL are likely to further enhance FTTCab capabilities.

 It is likely that it will eventually be necessary to eventually build out solutions that are even more capable than FTTCab/VDSL2; however, that does not necessarily mean that it is unwise to deploy FTTCab/VDSL2 today. If the investment to upgrade is deferred substantially, then the ability to apply the capital to other productive uses in the interim has substantial value to Italy; moreover, deployment costs are likely to be lower in the future than they are at present. It is likely that more than one technology will be present in Italy in any case.

 RAI, Mediaset, and SKY have all announced and released new IP-based platforms for catch-up television on the Internet. Increased availability of high quality audiovisual content could help drive demand for fast broadband going forward.

8.1.4. Worrisome developments and challenges

 In achieving DAE broadband Objectives, Italy faces numerous challenges.

o Uncertainty as to whether the deployment plans will continue to be pursued.

o Challenges in covering the 50% of households that are not addressed by current plans of network operators.

o Two million copper lines of low quality require special attention.

o Heavy reliance on Telecom Italia to meet the DAE broadband Objectives.

o Numerous challenges in putting capital effectively to work. This has many manifestations: (1) locked-up investment in the case of Metroweb; (2) the tendency of all operators to invest in covering the same 50% of the population; (3) VDSL- specific challenges, including both street cabinet sharing, and coordination of lines where vectoring is deployed; (4) sharing in the mobile network; and (5) opportunities to use infrastructure from other network industries (e.g. electricity, water). Some of these are challenges for the industry, while others are challenges for the National Regulatory Authority (NRA) AGCOM. Italy may wish to strike a different balance (with due respect for European State Aid and competition rules) between promoting investment and promoting competition than some other Member States. At the same time, it should not be forgotten that competition is often the most important spur to investment in fast and ultrafast broadband.

o Challenges regarding demand. Concerns include a declining number of fixed lines, penetration of fixed broadband that is stalled at current levels, limited consumption of audiovisual content, an aging population, and too few personal computers.

All of this leads to an unsettling but seemingly inescapable conclusion: DAE goal #3 will

not be fully achieved without substantial additional public policy intervention.

8.1.5. Prospects for achieving the DAE broadband objectives

DAE Objective 1: Italy had 98.4% fixed basic broadband coverage as of the end of 2012. o This is above average among EU Member States.

o It is reasonable to assume that the remainder can be covered by Fixed Wireless Broadband (FWB), mobile services, and satellite, and to claim that DAE Objective 1 has for the most part been met.

DAE Objective 2: There are numerous challenges. Coverage of substantially the full Italian population at 30 Mbps will require forms of public funding.

o Network operators have presented credible plans that could result in 50% or more of households being able to access 30 Mbps or more download speeds by 2016-17. o Coverage to additional households depends, however, on forms of public subsidy

and/or Public-Private Partnerships (PPPs).

o Estimates of the expenditure required to reach 100% coverage vary greatly. A detailed cost modelling effort is needed.

o The expenditure required (even in the higher estimates) could be within the range of EU structural funds that Italy could allocate to the development of this essential digital infrastructure.

DAE Objective 3: Italy’s prospects are uncertain at best.

o There is very little visibility into network operator plans that would provide 100 Mbps.

o Given that Italy benefits from a short average copper sub-loop length of just 300 meters, it is likely that many FTTCab lines could deliver speed substantially in excess of those achieved in other countries. Whether they will fully reach 100 Mbps is uncertain.

o Prospects for achieving DAE Objective 3 are dismal unless a number of key demand trends can be reversed.

o Our preliminary feeling is that FTTCab deployments, with an upgrade to G.Fast in the last three years of this decade, represents a pragmatic solution for much of Italy. It is likely that more than one technology will exist in Italy in any case.

o There are large cost uncertainties in achieving adoption by 50% of households.

Infrastructure sharing: The degree to which infrastructure sharing can be achieved plays a key role in all scenarios, and may influence which scenario is chosen.

Cost modelling: A serious cost modelling effort is in order, and it needs to be joined up with the planning and monitoring activities that we have proposed.

8.1.6. Ensuring progress toward meeting DAE Objectives

 The digital economy can play a crucial role in promoting GDP growth, employment, consumer empowerment, and government transparency. The deficits in terms of deployment and adoption of fast and ultrafast broadband that we have identified in this study are therefore appropriately a matter of national concern.

 Leadership and concerted attention on the part of the Italian government are called for in order to ensure that Italy achieves its full potential.

A proper institutional setting is called for in order to ensure that monitoring of Key Performance Indicators (KPIs) takes place on an ongoing basis.

 The Italian Government, informed by technological and regulatory considerations, should take the lead in formulating the KPIs.

o KPIs are needed not only for supply, but also for demand.

o KPIs should include not only the factors that would enable Italy to meet DAE Objectives, but also the supporting factors needed to enable fast and ultrafast broadband to deliver real benefits to Italian consumers and businesses.

o KPIs must constitute SMART indicators that address all key attributes, while recognising their interdependencies.

 The periodic monitoring of KPIs, however, should be at arm’s length from the Italian government. For monitoring to be appropriately objective and transparent, it should be conducted by an agency that is somewhat insulated from any political consequences. Candidate organisations include the Italian NRA AGCOM, the Organo di Vigilanza , and the Fondazione Ugo Bordoni (FUB). We suggest AGCOM overall. A complementary assessment of relevant fixed and mobile network technology trends could either be assigned to the Fondazione Ugo Bordoni, or else contracted through a public procurement.

 Whatever agency conducts the monitoring, it should have suitable resources in terms of funds and staffing, and should be obliged to report its findings on a predictable calendar (probably annual).

 There is a clear need for transparency, and for enabling informed public discussion and debate; however, much of the data developed by the monitoring process will in its nature be commercially sensitive, and therefore cannot be made public by the government. The government should not force public disclosure, but can invite and encourage commercial parties to voluntarily expose enough to enable meaningful public discussion.

 Putting a monitoring process in place is essential in all scenarios; however, monitoring alone does not assure that DAE Objectives will be met.

 We believe that the most appropriate mechanisms to ensure that network operators carry actual deployments forward can most appropriately be driven by the same public funding that will be needed in any case to achieve DAE Objectives. Public funding will inevitably be associated with commitments; thus, the network operator that accepts the funds is subject to commercially enforceable obligations, rather than to legal or regulatory obligatory obligations, if it fails to carry through on its commitments.

8.2. Recommendations

The Italian Government should commit itself to achieving DAE goals as a means of promoting societal welfare, innovation, and employment.

Four initiatives to support supply (corresponding to clusters of the recommendations presented throughout this report) emerge from this work:

 The Italian Government should institutionalise periodic monitoring of progress toward achieving DAE objectives. As a related matter, government should encourage operators to make their overall coverage plans public.

 A National Broadband Plan to should be developed and funded through EU structural funds in close cooperation with Regions but under the leadership of a central Italian planning and coordination unit.

 Consideration must be given to permitting infrastructure sharing, but with due respect for competition and EU rules.

 Domestic and international initiatives to harmonise and reallocate radio spectrum should be used to ensure an effective deployment of wireless broadband networks as a complement and a competitive stimulus to fixed broadband.

Government should also continue to promote demand. Demand is not a topic that was at the centre of our remit for this analysis, but demand will play a crucial role in ensuring that Italy reaches the EU 2020 targets, and it is the focus of several of our recommendations.

In the concluding sections of this report, we consider each of these areas in turn. We close with a list of all of the recommendations, together with the page number where they first appear in the body of the text.

8.2.1. Periodic monitoring of progress

In order to move the process forward, it is necessary to systematically identify Key Performance Indicators, to monitor their evolution over time, and to be prepared to take correction action in the event that expected progress is not achieved. A proper institutional design is required, with an appropriate division of responsibilities among the corresponding public bodies.

 The Italian government should define suitable Key Performance Indictors (KPIs). In doing so, the government should be informed by technological and regulatory considerations. KPIs should reflect both supply side and demand side consideration, and should consider not only what is needed to achieve DAE Objectives, but also the factors that contribute to enabling the DAE to deliver the desired benefits to Italian consumers and industry. Multiple sources will likely be required. All KPIs should be SMART indicators. A public consultation should be conducted regarding the KPIs.

 The Italian government should arrange for regular monitoring of KPIs by a suitably independent agency, probably AGCOM. A periodic assessment of relevant fixed and mobile network technology trends is also required, which would not necessarily be conducted by AGCOM itself (assuming that the responsibility is assigned to AGCOM), but would need to be coordinated with AGCOM. Suitable financial and staff resources need to be assigned to the responsible agency, and it needs to be obliged to report on a predictable periodic calendar.

 Network operators should be encouraged to expand their planning horizon so as to have at least a preliminary view of how they will approach network deployments in, say, the period 2018-2020.

 The Italian government, together with other national and European resources, should provide enough funding to ensure that all supply side aspects of DAE Objectives 1, 2, and 3 can be substantially met. In doing so, the Italian government should seek to obtain enough leverage over network operators that accept funding to enable the Italian government to monitor deployment shortfalls and, to some extent, to remedy them.

As a related matter, there is a clear need for transparency, and for enabling informed public discussion and debate; however, much of the data developed by the monitoring process will in its nature be commercially sensitive, and therefore cannot be made public by the government. The network operators and other commercial parties that provide information to the monitoring process are best positioned to determine what information can be publicly disclosed. The government should not force public disclosure, but can invite and encourage commercial parties to voluntarily expose enough to enable meaningful public discussion.

 Network operators should be invited and encouraged to publicly disclose those aspects of their broadband deployment plans that do not reveal commercially sensitive data. This will facilitate informed public discussion and debate.

8.2.2. Create and fund a National Broadband Plan

Leadership and concerted attention on the part of the Italian government are called for in order to ensure that Italy achieves its full potential. A proper institutional framework is called for, and it needs to be linked to a National Broadband Plan and to the periodic monitoring process that we have called for (see Section 8.2.1). A comprehensive cost modelling effort is in order, and the Italian government must then ensure that resources for the plan are found, with a large proportion likely coming from European structural funds.

Many different Italian public institutions have a role to play. This is a complex matter of industrial policy, entailing both supply side and demand side aspects. Attention is needed from the highest levels of Italian government in order to ensure that the different strands of policy come together.

 A National Broadband Plan that considers the full range of programmatic instruments and issues, addressing both the supply side and the demand side, is warranted. It needs to include an allocation of responsibilities among the responsible public institutions. It should not seek to direct regulatory and competition authorities that by their nature must function independently, but it can inform them of government priorities in terms of meeting DAE Objectives, and can invite them to take the action that they deem suitable. Given that different policy strands will probably need to be implemented by different public institutions, a central Italian planning and coordination unit reporting to the Prime Minister will be required.

 Consumers and many segments of Italian business need to be engaged, not just the network

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